National Consumers League

U.S. airline consolidation no good for consumers


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airplane_92.jpgWritten by NCL Intern Trang Nguyen

The American airlines industry is a lucrative one. Despite complaints about airlines’ constant delays, fees on everything from baggage, cancellation, seats, food, and blankets, to United Airline’s violent removal of Dr. David Dao this spring, the industry brought in $13.5 billion in profit in 2016. 

Consumers are also being charged excessive airfares, compared with European airlines’ patrons. In fact, The Economist magazine estimated that U.S. airlines’ profit per customer is nearly triple that of their European counterparts. In America, domestic airfares rose faster than inflation.

Over the past decade, consolidation has reduced the number of large airlines from nine to four - American, United, Delta, and Southwest - which control more than 80 percent of the U.S. market. Ninety-three out of 100 of the largest airports in America are dominated by one or two airlines, with 40 of them controlled by one. And airlines are trying to maximize their opportunities for monopoly over airports. For example, United Airline announced in June 2015 that it would move its shrinking number of flights from New York’s Kennedy Airport to New Jersey’s Newark airport, where it controlled 68 percent of the seats. Meanwhile, Delta would replace United to increase its dominance at JFK and pull out from Newark. We are pleased that the move was blocked by the Department of Justice, but more needs to be done.

Not only are airlines working to monopolize airports, they are also obstructing smaller discount airlines’ access to routes. For instance, Delta entered a 40-year-plus contract with Cincinnati/Northern Kentucky International Airport (CVG) that gave the airline the final say on much of the airport’s expenditures. The lack of competition at CVG worked to the detriment of travelers; it limited their travel options and forced them to pay monopoly prices, which were ranked the highest in the United States for years. After the contract expired in 2015, Delta finally loosened its grip on the airport when the airline signed a new 5-year contract that allowed CVG more control over its funding and incentive packages. Since then, CVG has seen an influx of low-cost airlines, including Frontier, Allegiant, and Southwest. Thanks to new competitions, ticket prices at CVG have dropped $170 per passenger in the last two years.

Still, consumers need better protections from airline monopoly. U.S. airlines are continuing to limit competition by lobbying to restrict international airlines like Emirates, Etihad, and Qatar and slowing down the approval process for low-cost airlines like Norwegian, despite the Open Skies agreements that limit government interference in commercial airlines’ decisions on routes, capacity, and pricing. When competition is limited, airlines are free to keep airfares sky-high while cutting service and quality, shrinking seat spaces, overbooking, and charging for carry-on luggage. Consumers are forced to travel farther for affordable airfares, as fliers near Reagan National Airport (DCA) and Washington Dulles International Airport (IAD) testify. The competition driven by 14 domestic airlines at Baltimore Washington International Airport (BWI) (compared with nine and eight at DCA and IAD, respectively), lowers airfares at BWI and allows the airport to attract customers from a far larger geographic area. 

Diversity of airlines also protects airports and residents of a region from being affected dramatically should an airline face financial problems. This happened to the Delta-Northwest dominated CVG when the airline cut more than half of its flights and 840 airport jobs. The elimination of direct flights to London, Amsterdam, Frankfurt and Rome devastated the community as businesses with European headquarters left the city. The region lost thousands of jobs and hundreds of millions of dollars annually as a result.

With the increased global nature of business, Americans are flying more often than ever. As a result, keeping airline travel affordable and accessible is increasingly important. It goes without saying that the airline industry has a major effect on the lives of its customers. Introducing real competition and breaking up oligopolies or monopolies at airports is good for business and good for consumers. This is one reason why NCL supports the DOT’s Airline Passenger Rights and urges Congress to enact protections that will stimulate competition, require better airline service, and make air travel more affordable.